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Nightly Business Report

News/Business. (2010) Allan Sloan, Fortune. New. (CC) (Stereo)

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U.s. 5, New York 4, Us 4, Stu 3, Tom Hudson 2, Susie Gharib 2, Dell 2, Stu Schweitzer 2, Europe 2, Bob Brusca 2, Bob 2, J.p. Morgan Private Bank 1, S&p 1, Ticketmaster Unit 1, Toyota 1, Tom 1, Let Me 1, Unon 1, Cliff Michael 1, Susan Uhran 1,
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  WETA    Nightly Business Report    News/Business.  (2010) Allan  
   Sloan, Fortune. New. (CC) (Stereo)  

    February 18, 2010
    6:30 - 7:00pm EST  

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captioning sponsored by wpbt >> susie: a late-day surprise today from the federal reserve. the central bank raised the interest rate banks pay for emergency loans, saying it's time to "normalize" lending now that financial market conditions are improving. >> tom: so what are ben bernanke and company thinking? where does the fed go from here? and what does it mean for the cost of credit? we get some insight from a fed watcher and a market pro. you're watching "nightly business report" for thursday, february 18. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. the federal reserve took the
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first step today to bring the banking system back to normal. right after the market close, the fed announced it's raising the interest rate it charges banks by a quarter of a percentage point. >> tom: susie, the so-called "discount rate" is used by banks for emergency loans, and was cut drastically during the financial crisis. the fed raised that rate today, saying in a statement it's time to "normalize" lending now that financial market conditions are improving. >> susie: tom, the fed's move sounds small, but it could have big implications. joining us now to analyze what all this means for wall street and main street: bob brusca, chief economist at fact and opinion economics; and stu schweitzer, global market strategist at j.p. morgan private bank. hi, guys. >> great to be here, susie. >> bob, let me start with you, why don't you just tell us what today's pov by the fed really means. >> well, it's preparing the way for more normal conditions an i think for eventually a rate hikement
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but i think it's too soon to think of that. i think what the fed is just trying to do is to normalize conditions in the reserve market in which it deals with commercial banks, to test the waters and to see if this situation which is more normal is viable. >> so this is a real technical move, stu, and do you agree with what bob saying? >> yeah, i think it is, susie. i mean of course if are you in the market, you say well, you can't fool me. you know, it's a move and therefore i'm going to take it seriously. so that's why we saw a share sell-off in the after-market, et cetera. but i think it's just part of the normalization procession and its good news that the fed is able to do this. >> now bob, one thing that the fed may very clear in his statement saying that today's action will not in any way impact the interest rates for consumers and for businesses. but is there any impact on main street? >> not really. the discount rate is kind of an overflow rate. it's banks, are in need of
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some short-term credit. they will goes and use the discount ratement they use it so little that it is not part of the average cost of funds for bank. it is to the going to have any implication for consumers except to the extent that market participants are going to start to look down the road and speculate and think boy if the fed raise this rate, when are they going to raise the fed funds rate what is next. the direct doesn't impact consumers. >> stu, market participants tomorrow will be thinking that, this announcement came out well after the market closed. so you said it's good news. so how do you think the market is going to respond tomorrow? >> well, right after the news, the futures market sold off. and the dollar rallied and i guess bonds sold off a little bit so people are taking it seriously as a sign that the fed is in motion. and that's probably a fair conclusion. but i think when people have the overnight to reflect on it, they will decide and maybe it will take the weekend to reflect on it. god only knows but they will decide that this is just
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confirmation of what vern ang has been saying that the economy is -- bernanke has been saying that the economy is getting incrementally a little stronger but we are not nearly out of the woods yet. >> bob, tell us a little bit about what is the next step. so this is the beginning of a process. what do you think will be the next thing that the fed is going to do? >> well, the next thing could be that the fed will actually go-go about raising the federal funds ratement i think before we get to a step like that or until the fed raises the discount rate again what we need to see are stronger economic data. we're looking at what would have been some fairly strong gdp numbers. we don't have solid job growth yet. we don't have positive job growth on any kind of consistent basis and i think that certainly would be a precondition before the fed would be comfortable with any kind of significant move that would impact the rates that consumers and businesses pay. >> when do you think that is going to happen, bob. when will the fed raise interest rates or do impact consumers and businesses. >> i think we've got to see job growth kick in.
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i think we need several months to make it clear. so i think we are at least three or four mondays away from that happening. >> what is your timetable? >> well, i think bob is right. you know, there is beginning to be some better news about the labor market. but as yet, there haven't been any gains in actual jobs. the most positive thing i've seen is that the volume of help wanted advertising on the internet, on-line help wanted advertising has surged in the last few months. after having fallen hugely during the recession. and so i think this is a sign that business is getting ready to start hiring. but it's going to take several months. and so the fed is in no rush at all. >> what about investors, stu, what should they do? should they begin to make changes in their portfolios. and if they are heavily invested in bonds or other fixed-income investment s this the time now to start changing, moving things around? >> well, i would make a few points. first of all in bonds i think it pays to be in
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shorter duration bond, not such long dur raise bonds that may get hurt as interest rates rise. because let's face it, bond yields are way lower than they're probably going to be once we have a normal economy on our hands. they are going to be up one and a half percent at least, i think, if we look out 12 to 18 months. so if that happens, bond prices will take a hit. the second thing i would say is that investors have to get ready to ride a continued roller coaster in equities, they willv$c up and down am but i think people without buy low and buy on dips are likely to be rewarded so that's a second point i would make. and third point i would make is be prepared for the dollar to strengthen here. one of the things that is going on while we're raising rates is that the european central bank is hampered in its ability to raise rates because of the mess the fiscal mess in greece and europe broadly. so i think we should expect a stronger dollar and
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investors should be positioned for that. >> all right, all great information from both of you. thank you so much for coming on the program to explain it all to us. >> pleasure. >> thank you, our guests bob brusca and stu schweitzer. >> tom: here are the stories in tonight's n.b.r. newswheel: before that federal reserve announcement, the blue chips marked a fifth straight day to the upside, thanks to some strong earnings reports. the dow jumped 83 points, the nasdaq added 15, and the s&p 500 gained seven. investors ignored a pop in prices at the wholesale level. the 1.4% jump in january producer prices was blamed on a jump in energy demand thanks to harsh winter weather. microsoft added to today's dow gains after its web advertising alliance with yahoo got the green light from regulators in the u.s. and europe. the head of toyota in japan says he will come to the u.s. next week to testify before a house panel on the company's recalls. and president obama made it official today, creating a bipartisan panel to tackle the
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nation's massive debt. the goal-- slash the deficit to around 3% of g.d.p. over the next five years. it's currently running close to 11%. >> susie: you may not know it, but you could be on the hook for more than $8,800. that's the amount every household in the country would have to pay to close a gap between what states have promised their employees for retirement and the money the states are putting towards those benefits. it's a trillion dollar gap. those figures come from the pew center on the states. here's how pew looks at it-- state pension funds are like credit card users making only the minimum monthly payment, but still charging up a storm. stephanie dhue talked with the center's managing director, susan uhran. >> states are a trillion dollar short funding their retirement benefit what does the shortfall mean for taxpayers? >> well, i think the bottom line for taxpayers is that
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states eventually will have to pay this bill. we found far too many states are not responsibly managing that bill and ultimately that's going to cause the annual payments that states need to make toward that long-term liability increase significantly. in 2008 states, the total checks states needed to write to pay their pensions and health care benefits for retirees $108 billion. so that is today, if they continue to defer, dealing with this problem, that annual bill is going to go up. it's going to start crowding out critical other things states want to spend money on, education, public safety and possibly even result in tax increases. >> what about for state workers are they at risk of losing their benefit. >> for retirees receiving benefits, this is why states have to pay the bill is a legal obligation for states. where states are likely to cut if they cut for new employees. >> illinois and kansas pensions are hugely underfunded. how did they get in that
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state, what mistakes that:did they make. >> i think one of the big mistakes states make to get into that is a lack of fiscal discipline which is they don't pay the an all bill that coming due. and let me give you an example of why that matters. take a look at new york and new jersey. in 2002 new york and new jersey have fully funded pension plans. after 2002 new york made regular the full payments every year that it was supposed to make into those plansment new jersey didn't. by 2008 new jersey's bill was a billion dollars more than new yorks every year. even though their liability was 15 billion dollars less. that is the impact of poor fiscal discipline. >> we've seen states like new jersey, start to talk about reforms, looking at things like increasing employee contributions for health care or decreasing benefits for new hires. will these things solve the problem? >> i think what we feigned is that relatively modest reforms if they put them in place soon can have a significant long-term impact.
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let me give you an example. in the late 80s minnesota increased the retirement age for new employees by one year. today, 70% of their workforce is covered under that policy, an over the last two decades they saved over $600 million. so it takes a long time but the sooner they do t the sooner they see the impact. >> we've seen a lot of private employers move away from defined benefit plans, reducing benefits generally. do local governments really need to provide these kind of benefits to be competitive. >> we've seen a couple states move from a designed benefit plan where they guarantee how much are you going to get to a defined contribution more like a 401(k) much michigan did it back in the 1990s. alaska in 2005. we're not seeing a lot of states move in this direction. some conversation about it but not a lot of movement. >> when is the day of reckoning, how long do states have to solve this problem. of this's been kicking the can for the better part of a decade. >> it's hard to say when but i think the really critical message here is that now is
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the time to act. if they act now this is an entirely solvable problem. if they wait they are going to have an unmanageable crisis on their hand, some states sooner than others. >> we have been speaking with susan urahn, thank you very much. >> tom: still ahead on the program-- from high-tech firms to fashion, there are a lot of companies wanting to go public. but with market volatility picking up, is now the time to dip into i.p.o.s. we get some answers.
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>> that late day announcement by the fed sure stirred up things in after-hours market trading. >> how about it. foreday where really all of the activity was after the closing bell. let's get you caught unon tonight's markets. after tonight's announcement from the federal reserve, the market's focus clearly will be on how stocks, bonds and commodities take the news. stock futures dropped as word surfaced about the fed's action. some traders called it a knee- jerk reaction. bond interest rate futures moved higher and bond prices lower, as the fixed income market works to anticipate how soon the fed may get more aggressive. and the u.s. dollar was sent higher, attracted by higher interest rates. it's that higher dollar that may put pressure on commodity and basic material related stocks. we saw both gold and oil prices drop after the announcement. there was some other news moving markets after hours.
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dell's fourth quarter results showed better than expected profits on growing sales. it saw sales growth across all of its business units. but selling prices were lower, squeezing profit margins. dell shares rose during the regular session on heavier than usual volume. but after hours, it was off as much as 4%. solar film maker first solar could cool off. the stock was down more than 6% after hours, as it has been trending lower since hitting more than $200 a share back in may. better than expected earnings didn't trump lower margins in the latest quarter, disappointing shareholders. the story at graphics semiconductor maker nvidia was higher margins, but worries about the company meeting customer demand were a bigger focus. better than expected earnings last night didn't help the stock today. instead, its concerned about slower growth as it works to meet demand. wal-mart was the biggest drag on the dow, slipping after a
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disappointing outlook. walmart's fourth quarter was marked by its first year-over- year drop in u.s. sales at stores open for at least 12 months. while profits were up, sales were marked by price decreases in food and electronic items. walmart stock saw about twice normal volume on today's weakness. the stock has traded in a narrow $2 range, between $53 and $55 over the past three months. one analyst we spoke with remains bullish on w.m.t., thinking walmart customers have been waylaid by the weak jobs market. still, neil currie at u.b.s. is optimistic walmart can turn sales around, re-igniting growth. >> we believe walmart still has growth opportunities in the u.s. they only have 6% market share in urban markets, the top 50 urban markets, whereas outside those top 50 urban markets, we think they have about 12% market share. >> tom: currie calls it a $100
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billion opportunity if walmart is able to successfully penetrate those big urban markets. walmart has been a client of his firm in the past year. it's far from back to school season, but you wouldn't know it by looking at a trio of for- profit education stocks. career education saw a double- digit percent jump as its quarterly report card was way better than projections. that carried over to corinthian colleges, rising to three month highs, and bridgepoint education rallied to a new year to date high. speaking of sector moves, auto parts retailers hit the brakes. advance auto parts missed expectations, even with higher sales and better profit margins. o'reilly auto saw a double-digit percent increase in quarterly sales for the fourth quarter in a row, but the 2010 outlook was a disappointment. and these weighed on competitor autozone. and while we're talking cars, following up on car rental agency avis, which was stronger yesterday. the stock was sideswiped today, dropping 14% after earnings failed to deliver better than expected results.
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we're learning of some top insider selling at amazon.com. in fact, the chairman, jeff bezos, is the seller. with the stock trending lower since december, bezos sold two million shares with a value of more than $230 million. and that's tonight's market focus. >> susie: what looked like a promising start to the year for initial public offerings seems to have hit a roadblock.
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demand for i.p.o.s has fallen sharply in the past few weeks. but that may be good news for individual investors, because it means greater odds of actually buying shares. but should you? erika miller got some answers. >> reporter: the express clothing chain is probably the only company investors will recognize on the list of firms planning to go public. we asked people who buy the clothes if they would consider buying the stock. >> i might. >> actually, its one of the companies i would be interested in, because i am pretty fond of what they do. >> of course, i would! i would! >> reporter: enthusiasm like that is rare for most i.p.o.s these days. many companies that want to go public find they must slash their share prices in order to attract investors. usually, that's a sign the deal is a dud. but i.p.o. expert david menlow says that's not necessarily the case. >> a lower pricing isn't automatically a red flag to stay away from an offering. in a market where we have a huge level of uncertainty, it does make sense to pay attention to
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these deals, if they like the fundamentals, if they like what the company is doing. >> reporter: it's that uncertainty in the stock market that has made many companies skittish about going public. but if the market stabilizes, some experts predict a flood of i.p.o. filings. a survey by accounting firm b.d.o. predicts a 25% increase in the number of u.s. i.p.o.s this year, and a 45% increase in money raised. b.d.o's mark giamo believes private equity firms will be a big source of many new issues. >> private equity firms, you know, have a rate of return in mind, and they have a time period that they want to hold their portfolio of companies. so, within our survey, i think it makes sense, when you see that private equity is probably going to lead the charge. >> reporter: i.p.o. experts have another prediction for this year-- at least one social networking i.p.o., like facebook or twitter. financial planner cliff michael says he typically steers clients away from i.p.o.s. >> the i.p.o. is a company that is not public yet, and so, if a
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company is not public yet, they are not being held to the same litmus test, disclosing all that information that a public company needs to do. >> reporter: even people who don't ever plan on buying an i.p.o. can benefit from a thriving i.p.o. market. often, companies go public to raise money for expansion, and that can mean jobs and tax revenues. erika miller, "nightly business report," new york. >> tom: here's what we're watching for tomorrow: quarterly results from j.c. penney, and we'll see if inflation is hitting consumers from january's consumer price index. also, our friday "market monitor" guest has some reasons to play to defense when it comes to investing. chuck carlson will tell you what they are. he's the c.e.o. and portfolio manager at horizon investment services. >> susie: if you paid to see "the boss" last year, you could be getting your money back. live nation's ticketmaster unit will issue refunds to some bruce springsteen concert goers. it's part of a government
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settlement announced today. ticketmaster was accused of using deceptive tactics to sell seats to those shows. the company blamed the problem on a computer glitch that steered unsuspecting buyers to another web site, where tickets were sold at four times face value. >> tom: general motors is making a big investment in a small new york town. the struggling auto maker will spend nearly half a billion dollars upgrading its engine plant in tonowanda, just outside buffalo. the plant will build the next generation of g.m.'s ecotec engine. that's the one used in the buick lacrosse, chevrolet equinox, and gmc terrain crossovers. the project will add nearly 500 jobs.
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>> susie: as we told you, the president today named a panel to help the nation clear its red ink. tonight's commentator says there's one easy spot where spending can be trimmed. she's maya macguineas, president of the committee for a responsible federal budget and director of the fiscal policy program at the new america foundation. >> lawmakers are about to have to get serious about scrubbing the budget for savings, as we can see from moody's recent warning that if we don't get our deficits under control, our debt could lose its triple-a status. a place where they should start is the murky, shadowy, under-
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the-radar part of the budget known as tax expenditures. these are the hundreds of credits, exemptions and deductions that permeate the tax base, turning it into swiss cheese rather than a sensible tax code. policymakers love them; they are a clever way to dole out a new tax cut, while also promising some grand new government benefit. need help with childcare? we'll give you a tax credit. want to promote clean energy? here's a long list of tax subsidies to do so. promotion of purchasing vacation homes? it's in there. and taxpayers like them, too-- they create the illusion of providing all of us with tax breaks that bring down our bill. but, of course, it doesn't really work that way-- they drive up the cost of other taxes or cause us to borrow more. moreover, these beloved tax cuts are a terrible way to make policy. they are really spending programs dressed as tax cuts to try to make the government look smaller than it is. they are highly regressive, they regularly fail to have the desired effects, and they receive virtually no oversight.
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it's tax expenditures, not rates, that make the tax code so annoyingly complicated. all told, there is close to $1 trillion of these tax expenditures hiding in the budget-- a trillion dollars. so lawmakers, run, don't walk, to the joint tax tables and let's get started on cleaning house in that massive tax expenditure budget. i'm maya c. macguineas. >> tom: the economy is showing signs of life, but its still tough out there. and we want to help by getting answers to your personal finance questions. use our video-sharing site to send in your thoughts, experiences and inquiries. you can go to our web site, nbratpbs.org. look for the "riding out the storm" logo. you'll find instructions on how to upload your videos so we can get experts to answer them. >> tom: that's "nightly business report" for thursday, february 18. i'm tom hudson. good night, everyone, and good night to you, too, susie. >> susie: good night, tom. i'm susie gharib. thanks for watching, everyone. we'll see all of you again tomorrow night.
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"nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org
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